Lowe's Q2 Earnings: Analysts Highlight Margin Strength Despite Revenue Miss and Sales Pressure

Lowe’s Companies, Inc. LOW released earnings results for its second quarter Tuesday before the opening bell.

The company reported adjusted earnings per share of $4.10, beating the analyst consensus of $3.99. Quarterly revenues totaled $23.586 billion, missing the street view of $24.013 billion.

Analysts covering the Louisville, Kentucky-based company provided their takes:

• JP Morgan analyst Christopher Horvers reiterated an Overweight rating.
• Goldman Sachs analyst Kate McShane reiterated the Buy rating on Lowe’s with a price forecast of $268.

JP Morgan: The analyst highlighted that the 33.5% gross margin surpassed both the analyst’s and the Street’s expectations of 33.3%. The operating margin also exceeded estimates, coming in 10 basis points above the analyst’s 14.3% estimate and 30 basis points above the Street’s 14.1%, reflecting ongoing productivity improvements and effective expense control.

Horvers notes that the margin upside was not surprising and supports a more positive outlook.

Also Read: Lowe’s Q2 Earnings Preview: Analysts Stress ‘Critical’ Margin Performance As Investors Focus On Housing Market, Home Repair Trends

The gross and operating margin improvements in the second quarter align with the analyst’s positive outlook on the company’s margins and contradict the bearish view that the company over-earned, under-invested, and faced high risks in its guidance.

This also addresses the previous gross margin miss in the first quarter. Quarter-to-date commentary is crucial, particularly when compared to the anticipated 2-3% decline in the second half of the year, to gauge the prudence of the outlook, Horvers adds.

Goldman Sachs: Although the company missed sales expectations, the analyst highlighted that this was somewhat expected after Home Depot, Inc HD earnings last week.

Downside risks for the company include the possibility of prolonged pressure on comparable sales, potential deterioration in pricing due to heightened competition or weaker-than-expected demand affecting profitability, and execution challenges related to the company’s turnaround efforts.

Price Action: LOW shares are trading lower by 1.53% to $239.48 at last check Tuesday.

Photo via Shutterstock

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